Foreign Investment in Nepal

Features of Foreign Investment and Technology Transfer Act of Nepal, 2019

Background

The aim of the Foreign Investment and Technology Transfer Act, 2019, herein referred to as FITTA is to reform the existing legal framework of foreign investment in Nepal to facilitate new investments. It has replaced the Foreign Investment and Technology Transfer Act, 1992. This article provides general information on the provisions outlaid by FITTA.

Scope of FITTA

One of the key highlights of FITTA 2075 is the inclusion of other forms of investments such as lease financing and investment in the secondary markets through Venture Capital Fund (VCF) under foreign investment. Another attractive feature of FITTA 2019 is the introduction of the Single-Point Service Centre. Through this facility investors can get various services from one place such as approval of foreign investment, registration, and visa related services, work permits, etc. this will definitely ease the tedious task of reaching out to multiple departments for clearance and approval.

Ways in which Foreign Investment is permitted in Nepal

A foreign investor can invest in any permitted industry individually or jointly, or through joint investment with Nepalese citizen or company established in Nepal. (Section 4)

Minimum or maximum threshold for foreign investment has not been prescribed in the law however, pursuant to section 13 of FITTA; limit may be imposed for the following investments:

  • For investment made through Venture Capital Fund as per Section 9.
  • Investment in the service industry shall not be lower than the commitment given by Nepal at the time of becoming a member of WTO.
  • Investment in equity shares only up to 51% is allowed in consultancy services.

An eligible foreign investor can invest in any permitted industry established in Nepal by acquiring the assets of the industry or shares not exceeding the prescribed percentage. (Section 5)

FITTA has introduced lease financing as one of the modes of foreign investment in Nepal. A foreign investor can invest through a lease in airlines, ships, machinery, construction equipment, or similar types of equipment within the prescribed limit. (Section 6)

A foreign investor can make foreign investment in any industry established in Nepal through the transfer of technology and know-how by entering into an agreement with the Nepali industry. Royalty in excess of the amount as specified in the agreement approved by the DOI/IBN cannot be repatriated. (Section 7)

The FITTA has permitted the establishment of a branch office of a foreign company after obtaining approval from the DOI. (Section 8)

The foreign investor can invest in equity shares in Nepal after obtaining from Securities Board Nepal (SEBON) by establishing venture capital funds. (Section 9)

Entities establishing venture capital funds can transact in securities through the secondary market in the stock exchange after registering with SEBON. The minimum shares to be purchased, investment limit, minimum shareholding period, and reserve fund in a foreign currency will become effective after GON notification. (Section 10)

Only public and listed companies established in Nepal or the company obtaining approval for issuing debentures as per relevant act can issue bonds, debentures, or securities to obtain loans or foreign currency. (Section 11)

Any company with foreign investment can avail loans from a foreign institution under ‘Project Loans’ or ‘Project Financing’ arrangement on the recommendation of the Ministry of Industry, Commerce and Supplies, and approval of the Nepal Rastra Bank. (Section 12) However, FITTA has not included loans as foreign investment and kept it separate, accordingly to avail loans approval from DOI is no longer required.

 

DISCLAIMER – The information provided above is designed for helpful information on the subject discussed. It is not meant to be used, nor should it be used as legal advice.

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